blackrock vs norway fund at shareholder meetings: institutional...

BlackRockvsNorwayFund

atShareholderMeetings:

InstitutionalInvestors’Votes

onCorporateExternalities

MarieBrière (Amundi &DauphineU.)Sébastien Pouget (TSE&TSM,U.ofToulouseCapitole)

Loredana Ureche-Rangau (UniversityofPicardieJulesVerne)

PresentationattheChaire FDIR,December14th,2017

ResearchProject

• Whydoinstitutionalinvestorsengagecompaniesonglobalexternalitiessuchasclimatechange?

• Two(non-exclusive)explanations– Universalownership(MonksandMinow,1995)– Delegatedphilanthropy(Benabou andTirole,2010)

Inaperfectworld

• Shareholdersareunanimousinrequiringexecutivestomaximisethefinancialvalueofthefirm

• Purelyfinancialobjective…• …andeverythingisforthebest!• Noneedforengagement

• Seee.g.Fishertheorem

“Themoderncorporationisaneconomicinstitutioninwhichthereisalwaysapotential

political(i.e.voting)aspect.”

S.J.GrossmanandJ.E.Stiglitz,Onvaluemaximizationandalternativeobjectivesofthe

firm,TheJournalofFinance,MAY1977

• Seee.g.theempiricalanalysesofCunat etal.,2012andFlammer,2015

Inreality

Externalities

• Oneimportantreasonwhyshareholdersdisagreeregardingcorporatepoliciesmightberelatedtoexternalities

• Externalitiesrefertofirms’impactonsocietythatarenotpricedefficiently(CO2emissions,nuclearenergy,excessiveuseofcommonresources,Employeetraining,employeewelfare…)

• Investorswhovalueexternalitiesmaydisagreeonthelevelofexternalitiesthefirmshouldgenerate

Universalownership• Largeinstitutionalinvestorsownasignificantshareinvirtuallyalllistedcompaniesandhavealonghorizon

• Theywouldlikefirmstotakeintoaccountnegativeexternalitiestoavoiddeterioratingtheoverallfinancialvalueoftheirportfolios–MonksandMinow,1995,HawleyandWilliams,2000,Mattison,Trevitt andVanAst,2011,Dimson,Kreutzer,Lake,Sjo,andStarks,2013,andAzar,2017

Universalownership• Forexample,universalownersmaywanttotakeintoaccountthenegativeeconomicimpactthattheGHGemissionsofafirmonothercompanies’businessesthroughwater,food,healthormigrationissues

• Universalownerscanalsoimprovethelevelofcoordinationamongfirms’policiestowardsexternalities– Benabou andTirole,2016andAzar,Schmaltz,andTecu,2017

Delegatedphilanthropy• Institutionalinvestorssuchaspensionfunds,mutualfundsandsovereignfundsinvestonbehalfofclientsorcitizenswhomayhavepreferencesregardingexternalitiesthatdifferfromtheonesofcompanies’managers

• Theymightwanttopromotetheseclients’andcitizens’valuesandpreferencesandinducemanagementtochoosetheappropriatecourseofaction– Heinkel,KrausandZechner,2001,Benabou andTirole,2010,Gollier andPouget,2016

Delegatedphilanthropy• Forexample,investorsmaywanttocommunicatetheirpreferredlevelofprecautionregardingclimatechangetomanagement

• Thiscanonlybeachievedviaengagement• Oneimportantreasonwhyinstitutionalinvestorsmayendorsethedelegatedphilanthropylogicisthattheycareabouttheirreputation amongclientsorcitizens

Delegatedphilanthropy• MorganandTumlinson (2012)offertworeasonswhyengagementbyinstitutionalinvestorsonexternalityissuesislegitimate– Companies’actionsarelesssubjecttothefree-riderproblemthanindividualshareholders

– Companies’productiondecisionsaremoreefficientfromasocialpointofviewandincreasesthewelfareofshareholdersandcitizenswhocareaboutexternalities

Methodology• Focusontwoarchetypical investors:– BlackRock:privatecompanylistedonNYSE,fiduciarydutytoshareholders(PNCBank,NorgesBankIM,Vanguard,Wellington,BlackRock…)–Equityportfolioaround$2.6trillion– 3,648holdingsabove3%aroundtheworld

– NorwayFund:sovereignwealthfundmonitoredbytheNorwegianMinistryofFinance,fiduciarydutytotherepresentativesoftheNorwegianpeople– Equityportfolioaround$500billion–Averageequitysharearound1%aroundtheworld

Methodology• Bothfundsareuniversalowners• Bothfundshavecentralizedcorporategovernanceteams(31personsatBRandaround12atNF)

• Differencesbetweenfunds:– BlackRock asastandardinvestor– Onlytheuniversalinvestorlogicmayapply

– NorwayFund asaresponsibleinvestor– Thedelegatedphilanthropymayalsoapply

Methodology• StudyhowthetwoinvestorsvoteshareholderresolutionsonEnvironmental(E)andSocial(S)issues- e.g.,GHGemissions,nuclearsafety,GMOs,humanrights,diversity- proxyforexternalityissues

• ComparevotesonshareholderresolutionsonEandSissuesto– ShareholderresolutionsonGovernanceissues– ManagementresolutionsonGandFinancialissues

• Focusoninvestors’oppositiontomanagement– ManagementopposesallresolutionsonEandSissues– IdenticaltostudyingsupportofinvestorsforEandSnegativeexternalitymitigationpolicies

Methodology• Testwhatfactorsaredrivingcorporateengagementofinstitutionalinvestorsonexternalityissues

• Twologicsmightexplainsuchengagement:– Universalownership– Delegatedphilanthropy

• IfBlackRockengagescompaniesonexternalityissues,theuniversalownershiplogicisatwork

• IftheNorwayFundengages,thedelegatedphilanthropylogicisatwork

Generalassemblymeetings• Generalmeetings(GM)provideshareholderswithacorporategovernancemechanism– Exercisetheirvotingrights,meetthemanagementandchallengecertainstrategicdecisions

• ResolutionssubmittedatGMmaybesponsoredbythemanagementorbyshareholders– coverfinancial,environmental,social,governanceissues– IntheUS,proposalsaresubmittedundertheSEC14a8rule,byshareholderholdingatleast$2,000or1%ofthecompany’ssecurities

– RulesvaryinEurope:min5%intheUKorFrance,1%inAustria,1%intheNetherlands,onesingleshareinGermanyorNordiccountries

• Focuson35,382resolutionsat2,796 corporationsacrosstheworldfortheyear2014

• Resolutionsatwhichboth BlackRock(BR)andNorwayFund(NF)voted

• Data:– VotesfromSECfilingsforBlackRockandfromthewebforNorwayFund

– FirmcharacteristicsfromFactset (marketcap,ROA…)– FinancialdatafromBloomberg– Extra-financialratingsfromMSCIESGSTATS– Analysts’forecastsfromI/B/E/S

Ourempiricalstudy

Dataonenvironmentalissues

Number of

voted resolutions Management Shareholder Management Shareholder

Environmental issues 69 - 4% - 49%

Animal welfare 2 - 0% - 50%

Animal testing 1 - 0% - 0%

Animal welfare policies 1 - 0% - 100%

Climate 24 - 4% - 83%

Climate change and GHG emissions 24 - 4% - 83%

Environment and sustainability 34 - 0% - 23%

Hydraulic fracturing 3 - 0% - 67%

Nuclear safety 15 - 0% - 0%

Sustainability reporting 16 - 0% - 50%

Others 9 - 22% - 33%

BlackRock

Rate of oppostion to the management by sponsor of the resolution

Norway Fund

DataonsocialissuesOthers 9 - 22% - 33%

Number of


Social issues 257 6% 9% 7% 49%

Consumer issues 10 - 10% - 10%

Genetically modified ingredients 8 - 13% - 13%

Other consumer responsability 2 - 0% - 0%

Diversity 11 - 9% - 73%

Board diversity 4 - 25% - 75%

Discrimination 1 - 0% - 0%

Sexual orientation 6 - 0% - 83%

General corporate issues 40 23% 0% 23% 0%

Charitable contributions 40 23% 0% 23% 0%

Human rights 20 - 10% - 35%

Human rights proposals 20 - 10% - 35%

Political activities 176 0% 9% 1% 55%

Lobbying 29 - 10% - 38%

Political contributions 147 0% 9% 1% 65%


BlackRock Norway Fund

DataongovernanceissuesPolitical contributions 147 0% 9% 1% 65%

Number of


Governance issues 28 396 3% 12% 8% 36%

Audit practices and risk management 3 113 2% 0% 7% 8%

Audit practices 3 111 2% 0% 7% 9%

Risk management 2 - 0% - 0%

Board accountability and responsiveness 18 0% 0% 0% 20%

Ability to remove directors 13 0% 0% 0% 0%

Tax transparency 5 0% 0% 0% 100%

Board independence 51 100% 16% 100% 88%

Competitive activities of directors 1 100% - 100% -

Independent chairman and directors 50 - 16% - 88%

Board structure 20 557 2% 5% 7% 7%

Appointment 20 143 2% 0% 7% 1%

Board composition 167 1% 0% 1% 38%

Others board related proposals 86 1% 47% 3% 47%

Related-party transaction 161 1% - 6% -

Compensation/Remuneration 4 462 5% 2% 11% 47%

Employee compensation 1 606 6% 0% 11% 15%

Executive compensation 2 856 4% 3% 10% 53%

Shareholder rights 195 21% 35% 20% 49%

Call special meeting 20 0% 33% 0% 67%

Proxy access right 22 0% 47% 0% 53%

Takeover defenses 87 29% 53% 26% 20%

Voting formalities 66 8% 24% 12% 54%



Dataonfinancialissuesandtotal

Voting formalities 66 8% 24% 12% 54%

Number of


Financial issues 5 716 3% 6% 5% 26%

Others issues 944 4% 1% 6% 7%

Total 35 382 3% 9% 7% 34%



Descriptivestatistics Variable N Mean Std. Dev. Min Max

oppos_atleastone 35 382 0,09 0,28oppos_blackrock 35 382 0,03 0,16oppos_norway 35 382 0,08 0,27

shareholder proposal 35 382 0,02 0,15resolution ES 35 382 0,01 0,10resolution G 35 382 0,80 0,40

Country Rating ES 35 382 0,62 0,06 0,36 0,69Country Rating G 35 382 0,78 0,12 0,14 0,95Company Rating ES 35 382 4,91 1,49 0,50 9,95Company Rating G 35 382 6,57 2,68 0,00 10,00Panel D: Firm characteristicsmktcap 35 382 14 923 32 209 48 439 000roa 35 382 4,57 8,34 -99,50 189,00pricetobook 35 382 3,84 32,69 0,19 1 540,00salesgrowth 35 382 0,22 4,70 -1,04 177,00asseturnover 35 382 0,79 0,70 0,00 9,39volatility 35 382 38,55 13,02 14,04 202,92analyst dispersion 35 382 0,13 1,02 -54,22 27,68

Panel A: Measures of agreement

Panel B: Resolution characteristics

Panel C: Country and firm ESG ratings

(1) (2) (3)BR or NF

oppose BR opposes NF opposes

Shareholder proposal*resolution ES 1.867*** 1.028*** 1.818***Management proposal*resolution ES 0,089 0.435** 0,146Shareholder proposal*resolution G 1.594*** 1.220*** 1.507***Management proposal*resolution G 0.327*** 0.238*** 0.296***Country rating ES -2.768*** -5.334*** -2.195***Country rating G 1.108*** 1.752*** 0.900***Company rating ES -0,018 -0,026 -0,016Company rating G -0.038*** -0.040*** -0.036***Mktcap -0.048*** -0.056** -0.048***ROA -0,011 -0.085* 0,009Pricetobook 0,004 -0,010 0,003Salesgrowth 0,015 -0,012 0,017Assetturnover -0,026 -0,010 -0,028Volatility -0.048** -0.091*** -0.037*Analyst dispersion 0,001 -0,013 0,003Industry fixed effect yes yes yesCountry fixed effect yes yes yesObservations 35 382 35 367 35 382Pseudo R2 0,062 0,085 0,058

Probit coefficients

Oppositiontomanagement

• BothinvestorsopposemanagementmoreforE&Sshareholderresolutionsthanformanagementresolutionsonfinancialissues

• OnlyNorwayopposesmanagementmoreforshareholderresolutionsonE&Sthanongovernanceissues

• BlackRocktendstoopposemoreE&Sresolutionsproposedbymanagement– casesinwhichmanagementwantstomitigateexternalities

Mainresults

• Identicalresultswhenwefocusonfirmsforwhichweknowtheholdings ofthetwoinvestorsfromSECFilings13F– 6,037resolutionsvotedbybothinvestorsin548firms

• Identicalresultswhenfocusingonclimatechangeissues– Clearlyanexternality

• Identicalresultswhenfocusingonactiveequityportfolio ofBlackRock– 8,782resolutionsvotedbybothinvestorsin658firms

• Identicalresultswithandwithoutcountryfixedeffects,andwithabivariate analysis

Robustnesschecks

Conclusion

• Engagementofcorporationsbyinstitutionalinvestorsinlinewiththedelegatedphilanthropylogic,lesswiththeuniversalownershiplogic

• Ourstudyquestionstheobjectiveofthefirmanddecision-makingtoolssuchasNPVusedbycorporations

• SeethetheoreticalanalysisofMagill,Quinzii andRochet,2015onthestakeholdercorporation

Whatweplantodonext

• Studymorerecenttimeperiods• Studyotherinstitutionalinvestors– Responsibleinvestorswhicharenotuniversalowners,e.g.,Calvert

– Traditionalinvestorswhicharenotuniversalowners,e.g.smallassetmanagementcompanies

– Studyotheruniversalowners,responsible(e.g.,CalPERSandTIAA-CREF)andstandard(e.g.,VanguardandStateStreet)

THANKSFORYOURATTENTION!

COMMENTSAREWELCOME

blackrock vs norway fund at shareholder meetings: institutional...

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